Income Tax Appellate Tribunal - Mumbai
Vijay Mallya , Mumbai vs Department Of Income Tax on 9 April, 2013
आयकर अपील य अ धकरण,
धकरण मंुबई
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES 'F' MUMBAI
सव ी आय.पी. बंसल, या यक सद य एवं
/एवं
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND
ी राजे , लेखा सद य
SHRI RAJENDRA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No.2339/MUM/2008
नधारण वष /Assessment Year 2002-03
The ACIT 20(3), बनाम Shri Vijay Mallya,
बनाम/
Room No.506, 5th Floor, B-103/202, Ameya House,
Vs.
Piramal Chambers, Lalbaug, Rajkumar Corner, J.P.Road,
Parel, Mumbai - 400 012. Andheri (W), Mumbai 400 058.
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : ACJPM 4438P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से/ Appellant by: Shri A.P.Singh
यथ क ओर से/Respondent by : S/Shri S.S.Phadkar/
Rajesh P. Mehta
सनवाई
ु क तार ख / Date of Hearing : 09/04/2013
घोषणा क तार ख /Date of Pronouncement : 08/5/2013
आदे श / O R D E R
PER I.P.BANSAL, J.M:
This is an appeal filed by the revenue. It is directed against the order passed by Ld. CIT(A)-XXXII, Mumbai dated 27/12/2007 for assessment year 2002-03. The grounds of appeal read as under:
2 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03
1. The Ld. CIT(A) erred in allowing the assessee' claim for deduction u/s 80-lB of Rs. 2,85,97,433/- merely relying on the decision of the ITAT Mumbai in the case of Patel Engineering Ltd. Vs. Dy.CIT 94 ITD 411.
2. The Ld. CIT(A) erred in relying on the decision of Patel Engineering Ltd.
which was deliviered in context of deduction u/s 801A while assessees case is covered u/s 801B.
3. The Ld. CIT(A) has also erred in not appreciating the fact that decision of Patel Engineering Ltd relied upon by him, is rendered in a different context. In the case of Patel Engineering Ltd., the assessee developed some infrastructural facility for generation of power and electricity and irrigation and handed over the same to the Government and there was no question of the Government selling it further and the State Governments of Maharashtra and Andhra Pradesh which utilized the infrastructure for Public advantage. It was in this context the developer was allowed deduction u/s. 801A.
4. With prejudice to ground No.s.1 to 3 the CIT(A) erred in not considering the fact that the decision of ITAT in the case of Patel Engineering Ltd., was not accepted by the revenue, and an appeal against the same is still pending with the Bombay High Court for adjudication.
5. The appellant prays that the order of CIT(Appeals) on the above grounds be set aside and that of the AC be restored.
2. The impugned assessment order is dated 29/12/2006 passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (the Act). Earlier the assessment was framed under section 143(1) on 31/3/2003. Later, on the basis of findings given in assessment order for assessment year 2003-04 reasons were recorded for re-opening of the impugned assessment. These reasons have been reproduced in the assessment order as well as in the order of Ld. CIT(A). In the nutshell the reasons are that during the course of assessment proceedings for A.Y. 2003-04 it was noticed that assessee has claimed deduction of Rs. 2,85,97,438/- under section 80 IB(10) of the Act. On going through the details of the claim it was found that assessee was not owner of the plot on which the housing project was constructed and he did not also acquire development rights in respect of the said land. A perusal of development agreement dated 20/11/1999 entered into between the assessee and Arunasmruti Co-operative Housing Society Ltd.(the Society) it was 3 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 observed that the land was owned by the Society and it awarded a contract to the assessee for construction of the flats for its members. The Intimation of Disapproval(IOD), Commencement Certificate and Project Plans were approved by the Local Authority in the name of the society which was referred to be the owner of the land. The terms of so called agreement are identical to the "contract of work". A summon was issued to the society under section 131 and the Society confirmed the development agreement dated 20/11/1999 and copies of agreement of purchase of land dated 15/1/1974 and conveyance deed dated 26/6/2000 between erstwhile owner of the land Shri Babu Navshya Page and the Society were produced. According to reasons these facts were sufficient to prove that assessee did not become the owner of the land. The title given to the agreement dated 20/11/1999 was a colorable device to get the claim under section 80 IB(10) of the Act. The sale price of the flats shown by the assessee were fixed at Rs. 1100/- per sq.ft. for old members and Rs.1200/- per sq.ft. for the members enrolled at later stage which does not include cost of land. According to the rate prevailing in the market the rate was much higher and varies from Rs.2,000/- to Rs.2,500/- per sq. ft., which shows that the contract value of the assessee inclusive of its profit was fixed at the above price. The assessee was under the obligation to construct the units only for the members of the Society. Such restriction shows that assessee is a contractor. Benefit under section 80 IB(10) can be given to the builder and developer and not to the contractor having no development rights. The assessee was required to justify admissibility of the claim. The assessee did not submit any explanation. Therefore, on the facts available on record there is a reason to believe that assessee is not entitled to deduction under section 80 IB(10) of the Act which constitute income escaping the assessment within the meaning of section 147 of the Act. In this manner assessment proceedings for impugned assessment year have been re-opened by issue of notice under section 148.
4 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03
3. During the course of assessment proceedings the assessee was required to justify its claim regarding deduction under section 80IB(10) of the Act. Vide letter dated 12/10/2006 it was submitted by the assessee that so as it relates to Borivali project one Shri Babu N. Page has been an agricultural tenant in respect of land who filed a case before Competent Authority for transfer of land in his favour and accordingly purchase price was determined by Competent Authority during the year 1973. Shri Babu N. Page wanted to buy the land under section 23G of the Land Revenue Act from Aagboatwala and family who were the owners of the land. He made the payment of nazrana to the land owner and obtained a certificate under section 32M of the Bombay Tenancy and Agricultural Land Act, 1948 in his favour. 60% of the land was engaged by illegal liquor manufacturers. Shri Babu N. Page did not have the means to develop the plot, therefore, he approached one Shri P.C. Wadhawkar, who was employed as T.C under Central Railway. Shri Wadhawkar agreed to purchase the said land vide agreement dated 15/1/1974 and paid the earnest deposit money and proposed to form a co-operative society. Then Shri Wadhawkar took over the right from Shri Babu N. Page and applied to Urban Land Ceiling Authority(ULC) and obtained necessary exemption certificate in the name of a proposed co-operative housing society. However, Shri Wadhawkar could not take any further step due to various reasons which include encroachment by hutment dwellers and litigation etc. He also did not possess requisite funds and expertise to develop the property, therefore, he look out for competent developer to develop the property. In the meantime he was served a final notice from ULC Authority compelling him either to develop the property or his exemption would lapse. Thus he approached Shri Vijay Mallya proprietor of M/s. Amya Developers to involve himself in developing the property. Silent features of the development of property agreed between Shri 5 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 Wadhawkar in the capacity of chief promoter of the proposed co-operative housing society and Shri Vijay Mallya were as under:
"Mr. Vijay Mallya Prop: Ameya Developers shall be the Sole Developer of the entire property including to do the following act and things for the purpose entirely at the cost of the developer (Mr. Vijay S. Mallya).
1. The entire cost of developing the property including the costs of land, land development, stamp duty, registration fee, legal charges etc. is to be entirely paid and borne by the Developer.
2. Negotiate and settle all disputes, claims etc. of the encroachers and occupants on the said property and bear all costs thereof
3. Look after all the present and future litigations that may occur during the development of the project.
4. Appoint Architects, Engineers. Professionals etc. and to deal with all the concerned government authorities and pay their costs, charges, deposits, levies etc. and obtain all the necessary approvals, clearances as may be required from time to time for development of the project.
5. To incur all costs and charges in relation to the development of the project.
6. To sell the flats to the prospective buyers at such sum as may be mutually agreed upon by them and recover the sale proceeds directly from the flat purchasers who will be admitted as the members of the Society as and when formed.
7. The Society after its formation will execute an irrevocable Power of Attorney in favour of the Developers and it the above arrangements."
3.1 It was further submitted that assessee was involved with the Borivali project from A.Y 1999-2000 i.e. F.Y 1998-99. Reference was made a chart of payment made with regard to land. It was submitted that under the provisions of ULC Act the project plan could be passed only in favour of the housing society. The assessee took over the project from Shri Wadhawkar Who had already applied for the ULC clearance in the name of the proposed housing society namely Arunasmruti Co-operative Housing Society. After the 6 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 involvement of Shri Vijay Mallya with the Borivali project with about 28 initial members the society was formed, wherein all members are family friends and employees of Shri Vijay Mallya. Out of initial 28 members hardly three members are allotted flats in the Borivali project. It was submitted that society in the present case is merely a Special Purpose Vehicle( SPV) to develop plot of land.
3.2. The land was illegally occupied by some anti-social elements who were doing illicit liquor business. The assessee cleared all the illegal occupants and settled with various kabzedars and settled claims of various people over the land. Thus assessee had cleared all hurdles to get the land title acquired and marketable. The application with BMC for approval of the project clearly needs 3 to 4 months time. If plans were to be sent for approval by the society then it should have been sent atleast three months earlier the date of approval and in the present case plans were got approved from BMS immediately on formation of the society because of the fact that assessee sent the plans for approval through his own Architect in the name of proposed society before formation of the society. Thus it was submitted that society was mere SPV to develop the plot. Copy of approved plans as well as certificate of registration was submitted to the AO and it was submitted that the assessee has developed the project at his own risk and cost. He has invested funds in the land cost to owners, purchase of TDR, cleared litigation over the plot, paid all charges to BMC, RCC consultancy with Architect and Solicitors and further spent money to construct the buildings. Thus it was submitted that assessee has acted as a developer. Replying to the query of the AO that assessee is not a contractor but a developer reference was made to the provisions of Section 80 IB(10) of the Act which entitles the developer to be eligible of deduction equal to 100% profit derived from such projects. It was submitted that condition for allowability of the deduction are (i) the land area subject to development should be atleast one acre in size; (ii) the housing project should have commenced on 7 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 or after 1st day of October 1998; (iii) residential units in the housing project should have maximum built-up area of 1000 sq.ft. in Mumbai and Delhi and within 25 Kms from the Municipal limit of these cities and maximum built up area of 1500 sq.fts. at other places; (iv) project should have been approved by Local Authority. It was submitted that the section does not refer to any stipulation as to whether the land under development is to be owned and purchased by the developer in his own name. Neither the section prohibits any person from developing land of somebody else. The scope of section is large and intend to apply to any entity/undertaking which undertakes housing projects on its own risks and rewards. It was submitted that according to normal practice in Mumbai that the developer of a plot of land gets development rights and power of attorney to execute development rights. With these powers the buildings are developed and also sold to various parties after completion of the project by the developer and such practices followed in order to avoid double stamp duty of conveyance of the property.
3.3. It was submitted that deduction under section 80 IB(10) should be allowed on the following grounds:
"."(a) That the society has handed over the possession of plot to the Developer for development vide a Development Agreement and Power of Attorney.
(b) That the Arunasmruti Housing Society Project has been approved by local authority a L999 and the said project commenced on the same day i.e. 16/09/1999. Hence, condition of commencement of the project on or after Old 0.1998 is satisfied.
(c) That the land area of the plot on which project developed is more than one acre. The size of the plot is 6373 sq. mt. or equivalent to 1.75 acre. Thus the condition of plot area of more than one acre is also satisfied.
(d) That the residential units constructed are less than 1000 sq. ft built up in size, as the project is located in the city of Mumbai.
(e) That the project has been duly approved by the local authorities as per plans and other documents the plans and documents are already submitted to the then Assessing Officer. The condition of Approval of project by Local Authority' is also satisfied.
8 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03
(f) A certificate in prescribed Form No. 1 OCCB has been obtained from a Practicing Chartered Accountant and attached with the Return of Income for A.Y. 2002-2003 3.4. Further reference was made to the terms and conditions of development agreement and power of attorney granted by the housing society to the assessee and it was submitted that these conditions inter-alia include to purchase land; to clear the litigation on the land; to clear the encroachment on the land and to develop the project as per the plans to be approved by the Local Authority entirely at his risk and cost. It was submitted that society did not perform any duty with regard to acquisition and possession of the land, approval of plans from the Local Authority, but the society have unconditionally allowed the developer to prepare the plans suiting to the needs of the developer. The developer get plans approved by the Local Authority and has authority to sell the units to any person and recover his cost of land and buildings. Thus it was submitted that conditions clearly indicate that the assessee being developer has assumed all risks and rewards of the project. He invested his own funds. He got the plans and project approved from the Local Authority and finally the housing project and marketed the same on his own. The entire sale proceeds are receive by the assessee and are adjusted towards his cost of land, construction, marketing and selling expenses of the project. It was submitted that in the development agreement of the society nowhere the society has guaranteed the developer for his investment in the land and building, therefore, it is clear that assessee has undertaken his own risk to develop the project and has his right of reward which include tax concession.
3.5. It was further submitted that at the end of the year Borivali project has five flats, which remained unsold. Out of these five flats three flats were sold in A.Y 2003-04 on which loss of Rs.5,76,100/- was incurred and the said loss was not claimed as deduction since the project was considered as complete in A.Y 2002-03. It was submitted that during the course of assessment proceedings for A.Y 2003-04 it was unnecessary to deal with the deduction 9 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 under section 80 IB(10) of the Act. It was not claimed at all and in the said assessment the AO without appreciating the facts has formed an opinion that assessee is working as a contractor and is not carrying on business as builder or developer. In the said assessment the view of the AO that the assessee is a contractor based on the following grounds:
".1.The assessee is neither the owner of the land on which housing project was constructed nor acquired the development rights in respect of the said land.
2. The agreement dated 20.11.99 between Arunasmruti Co-op Hsg. Soc. Ltd. and the assessee cannot be considered as Development Agreement though termed as Development Agreement, since the since IOD commencement certificate and the project plans were approved by the local authority in the name of the society.
3. All the legal formalities completed by the society.
4. The sale agreements which are entered into with the Purchasers does not include the cost of land"
3.6 Referring to the above it was submitted that the AO has misread the development agreement dated 20/11/1999 entered into between the assessee and society. Reference was made to the following clauses of the agreement:
"The society hereby declare as under:
Clause 1(g): They have not granted the development rights to any other developers in respect of the said property.
Clause 1(E): They further agree to under take to execute an irrevocable General Power of Attorney in favour of the developers and / or his nominees for effectively developing the said property and for selling units, flats, garages, parking place and / or any other permissible user on the said property to be constructed as per Rules and Regulations.
Clause 3: It is expressly agreed between the parties that
(a) The Party of the second part (Mr. Vjay S. Mallya) shall sell the units constructed on the said property to the members of the said society who shall pay the Developers directly such sum as may be mutually agreed. The party of the 10 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 second part shall be bound to provide the amenities detailed in Annexure 'A' to this Agreement.
(d) The party of the second part agrees and undertakes to give the party of the first part an office premises in the stilt of the building to be constructed on the said property admeasuring about 200 sq. ft and to pay a sum of Rs. 10,00,000/- (Rupees Ten Lakhs only) an obtaining the deletion / shifting order from the concerned authorities in respect of the reservation on the said property. All expenses pertaining to obtaining the said order shall be borne by the Party of the second part. The Party on the second part is authorized to construct and sell the units on the de reserved plot area.
(e) it is expressly agreed between the parties that the party of the First Part shall execute an irrevocable General Power of Attorney in favour of the Party of the Second Part or his nominee for the purpose of development of the aforesaid property.
(f) it is expressly agreed between the parties that the developer is entitled to use the permissible TDR and/or set back area on the said property and the owner shall not claim any right, title or interest of whatsoever nature over the said TDR and or portion of the TDR used by the developers on the said property and shall always co-operate with the developer and shall execute such documents as and when called upon by the developer for consuming such TDR on the said properly. Cost and consequences of the use of the TDR is the sole responsibility of the developers i.e. the Party of second part. The party of second part is entitled to consume the entire FSI and permissible TDR on the said property.
(g) It is expressly agreed between the parties that the developers are entitled to sell the flats, garages, parking lot on the building to be constructed on the said property and to accept the consideration and to pass on valid receipt for the same and also mortgage the said property.
(k) The Party of the Second Part (Mr. Vijay S. Mallya) is free to transfer the Development Rights under this agreement without the consent of the society to any other party.
Note: The Clause 3(k) of the Development Agreement is enough indicator of the nature of the transaction. Such rights are usually enjoyed by the Developers and Builders only but not by contractors. This proves that your assessee is a Developer and not a mere Contractor who works for the fees or remuneration fixed in advance."
3.7. It was further submitted that in pursuance of aforementioned agreement power of attorney dated 23/11/1999 was executed and following clauses from power of attorney were referred:
11 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 "Para No. 2 of Power of Attorney.
2. To manage the affairs of our said property and to change the user of the said land and convert it into non agricultural use and for that purpose to seek permissions from competent authorities by appointing architects, advocates and making such necessary writings, applications, undertaking as may be required and to pay in our name and on our behalf NA takes, charges and all other levies.
Para No. 3 of Power of Attorney
3. To engage architects, engineers, supervisors as may required for getting the plans on the said property duly approved from Municipal Corporation of Greater Mumbai and to pay necessary deposits for obtaining JOD and C. C. in our name and on our behalf.
Para No. 6 of Power o Attorney
6. To pay the balance consideration to Mr. B. N. PAGE and all other persons interested in the said property in our name and on our behalf and to obtain the conveyance from said MR. B. N. Page in respect of the said property.
Para No. 13 of Power of Attorney
13. To construct on the said property as per the plans sanctioned by the Corporation and to allot the same to our members as per our directions by providing amenities as prescribed by the society from time to tune.
Para 14 of Power of Attorney:
14. To collect directly from our members the land clearance cost and proportionate development cost and the construction cost (inclusive of architects fees, RCC Consultants fees, deposits made to Corporation and legal fees) and to pass on valid receipt for the same".
3.8. Referring to these documents it was submitted that agreements are not between the owner of the land and the contractor for construction of buildings.
The assessee has been given full authority to deal with the land to construct buildings thereon, sell the flats on ownership basis and given the possession to the person who have to become the members of the Arunasmruti Co-operative Housing Society Ltd. The assessee had paid land cost including TDR rate of Rs.57,24,380/- over a period of 5 years covering the financial years 1998-99 to 2002-03. A chart was furnished to show that such payment was made and it was submitted that it can be observed from the said chart that the assessee had paid the land cost even prior to development agreement dated 20/11/1999. It was submitted that the land cost was spread over five years as the assessee had to clear encroachers / claimants. Thus it was submitted 12 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 that the first objection of the AO is not right that the assessee has not paid cost of land.
3.9. It was further submitted that during the period covering A.Y. 1999-2000 to 2002-03 the assessee had sold flats worth of Rs.8,56,15,997/- and all purchasers of the flats had become the members of the society. The list of all such members was filed along with sale price paid by them and details regarding available FSI were also filed to the A.O during the course of assessment proceedings of A.Y 2003-04.
3.10. It was further submitted that as assessee has fulfilled all the conditions laid down in section 80 IB(10) and assessee is not contractor and such fact is evident from the fact that assessee has shown the value of closing stock of unsold five flats in P&L Account and balance sheet, the assessee cannot be treated to be contractor. Out of five unsold flats three flats were sold during the assessment year 2003-04 and balance two flats are shown in stock and such accounting position has been accepted by the AO in A.Y 2003-04. A contractor for construction is generally not concerned with the profit or loss of the project. The contractor carry out construction work on behalf of the principal, whereas builder and developer act on his own and is liable for losses, if any, incurred by him and all these conditions are satisfied by the assessee who cannot be considered as contractor. The assessee has filed return for the year under consideration declaring the profit of Rs.2,85,85,938/- and has incurred total expenditure of Rs.57,24,380/- being on account of land, therefore, assessee cannot be denied with the benefit of deduction under section 80 IB(10) of the Act.
3.11. However, with regard to the aforementioned submissions A.O has observed that the earlier A.O had elaborately recorded the reasons for reopening the assessment and has found that assessee is not entitled to 13 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 deduction under section 80 IB(10) and on this issue the assessee is in appeal before Ld. CIT(A). The AO again issued notice to the assessee vide letter dated 8/12/2006. In response reply dated 9/12/2006 was filed. It was submitted that as deduction under section 80 IB (10) was not claimed in A.Y 2003-04, Ld. CIT(A) has dismissed this issue inlimine as no deduction was claimed. It was submitted that assessee could not be treated as a contractor according to the definition and also in the light of decision of ITAT in the case of Patel Engineering Ltd. vs. DCIT, 94 ITD 411(Mum).
3.12. However, A.O did not agree with such contention of the assessee on the ground that decision in the said case does not apply in the case of the assessee. According to A.O the assessee in its reply could not rebut the facts and finding of the AO for re-opening of the assessment and considering the facts and circumstances of the case he concluded that assessee is a contractor and not a developer within the meaning of section 80 IB(10) of the Act and thus would not be entitled to claim deduction under section 80 IB (10). It is in this manner A.O has rejected the claim of the assessee under section 80 IB(10) of the Act.
4. Being aggrieved assessee filed an appeal before Ld. CIT(A). Before Ld. CIT(A) the submissions made before AO were reiterated. On these submissions of the assessee Ld. CIT(A) has observed that AO was not correct in upholding that the assessee is not entitled to deduction under section 80 IB(10). During the year under consideration, the assessee completed the Borivali Project which was constructed for members of Arunasruti Co- operative Housing Society Ltd. For such purpose development agreement dated 20/11/1999 was executed. The history of the projects starts from Shri. Babu N. Page, who was an agricultural tenant in respect of the said land. The land was encroached by illicit liquor manufacturers, therefore, Shri Page approached one Shri Wadhawkar for purchased of the said land. Although 14 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 Shri Wadhawkar agreed to purchase the land and form a co-operative housing society, however, could not take any further step due to various reasons including removal of encroachment. He in turn approached the assessee for the purpose of development of the property. The assessee agreed to develop the said land and construct flats on the said land as per terms of agreement dated 20/11/1999. Ld. CIT(A) observed that though the AO has stated to have considered the arguments of the assessee, terms and conditions of the agreement as well as case of M/s. Patel Engineering Ltd. (supra), but while rejecting the claim of deduction under section 80 IB(10) he has not elaborated upon the reasons on which the said claim was rejected. The AO also failed to state reason that why facts in the case of M/s. Patel Engineering are different from the facts of the case of the assessee. Ld. CIT(A) has observed that AO has merely stated that assessee has not been able to rebut the facts and findings of the AO for re-opening of the assessment as per reasons recorded by him and AO has not elaborated such aspect. Ld. CIT(A) observed that assessee had acquired absolute development rights by virtue of development agreement dated 20/11/1999, in consequence of which the general power of attorney was also excluded by the society in his favour. There are number of stipulations in the agreement which has given the assessee the absolute power of development of the said land. Then Ld. CIT(A) has reproduced relevant clauses of the development agreement and after reproducing the same he has observed that the aforementioned clauses of agreement, if seen in the light of decision of Mumbai ITAT in the case of M/s. Patel Engineering Ltd.(supra), are on strong footing as in the said case assessee's contractor rights of development were even more dilute. In the case of the assessee not only work of construction of project was performed but infrastructure facilities were also developed. The assessee held general power of attorney to carry out the work of obtaining all legal permissions, deciding entry of new members to the society as well as to collect from members the land acquisition cost and proportionate development and construction cost. The assessee was also liable to bear the 15 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 cost of land over a period of five years. The AO has not read the said agreement properly and missed out these rights and powers enjoyed by the assessee for execution of the said project. Therefore, Ld. CIT(A) has held that the assessee has enjoyed absolute development right in the land which was developed by him, therefore, is entitled for grant of deduction under section 80 IB(10) of the Act. He deleted the disallowance of the deduction. The department is aggrieved and has filed aforementioned rounds of appeal.
5. After narrating the facts it was submitted by Ld. DR that neither development agreement nor power of attorney was registered, therefore, relying upon them it cannot be pleaded that assessee did not work as a contractor. He submitted that decision in the case of M/s. Patel Engineering Ltd. vs. CIT(supra) is on the provisions of section 80 IA(4) and cannot be applied to the case of the assessee as deduction in the present case has been claimed under section 80 IB(10). He submitted that the said decision is no longer a good law after insertion of explanation by the Finance (No.2) Act 2005 with retrospective effect from 1/04/2001 and it has been clarified and declared that nothing contained in section 80 IB(10) shall apply to any undertaking which executes the housing project as a work contract awarded by any person including Central or State Government. He submitted that according to the facts of the case the assessee did not incur cost of land as the same has not been paid to the assessee by the society. For this purpose Ld. DR referred to the construction cost, details of which is placed at page 12 of the paper book. Further, he referred to page-13 of the paper book, where the details regarding construction expenses has been submitted, wherein land/land development cost is shown at Rs. 8,91,212/-. He submitted that whatever the price of land paid by the assessee is i.e. for vacating adverse possession and no payment has been paid to the assessee. Referring to the details of land cost shown at Rs.57,24,380/-, details of which is filed at page 169 of the paper book, Ld. DR submitted that these are payments made by the assessee to vacate the land 16 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 from adverse possession for which the evidence have been filed by the assessee from pages 114 to 126 of the paper book. He submitted that it is only a work contract given by the members of the society to the assessee, wherein all the cost were to be incurred by the assessee and that cost along with profit was recovered from members of the society.
5.1. For this purpose Ld. D.R referred to the terms of power of attorney wherein in the recital clause has been mentioned as under:
"AND WHEREAS therefore the Promoter of the Arunasmrutu Society have approached MR. VIJAY MALLYA, Proprietor of M/S. AMEYA DEVELOPERS, who is expert in construction and requested him to help the society by using his technical know-how as well as financially to make the payment to the landlord, to clear up the access and to settle with the tenants, encroachers and get the plans approved from B.M.C. by paying the deposit initially, to construct the building and to recover the same from the members."
He submitted that assessee did not submit any documents regarding purchase of land by Shri Babu N. Page and Shri Wadhawkar. No document has been brought on record to show that title of the property has been changed hand and unless there is a change in title, the capacity of the assessee to carryout construction work was only of a contractors and not a developer.
6. On the other hand, Ld. A.R submitted that the assessee has developed the property at his own right. The flats constructed were sold by the assessee and sale price has been credited to the books of the assessee. The terms of the development agreement and power of attorney clearly indicate that assessee had worked in the capacity of developer and not in the capacity of contractor. He submitted that assessee has shown unsold flats as closing stock in his books of account and the same has been accepted by the department in the next year assessment. He submitted that contractor cannot treat the constructed property as his closing stock. He submitted that assessee has 17 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 paid all the payments for the land details of which were field before AO and it is not even the case of AO that assessee did not make payment of the land cost as per agreement. He submitted that the only objection of A.O is that assessee has worked as a contractor and Ld. CIT(A) after analyzing the terms and conditions of the development agreement which have been reproduced by the Ld.CIT(A) in his order, has rightly come to a conclusion that assessee was working as a developer and is entitled for deduction under section 80IB(10) of the Act.
6.1. Ld. A.R referred to the decision relied upon by Ld. CIT(A) and also referred to the decision of Hon'ble Gujarat High Court in the case of CIT vs. Radhe Developers, 341 ITR 403(Guj). In the said decision their Lordship of Gujarat High Court after considering the provisions of section 2(47)(v) of the Income Tax Act, 1961 and section 53A of Transfer of Property Act have observed that a combined reading thereof would lead to a situation where the land would be for the purpose of Income Tax Act deemed to have been transferred to the assessee. In that view of the matter, for the purpose of income derived from such property, the assessee would be the owner of the land for the purpose of the said Act. It is true that the title in the land had not yet passed on to the assessee. It is equally true that such title would pass only upon execution of a duly registered sale deed. However, we are for the limited purpose of these proceedings, not concerned with the question of passing of the title of the property, but are only examining whether for the purpose of benefit under section 80 IB(10) of the Act, the assessee could be considered as an owner of the land in question. Referring to the decision of Hon'ble Apex Court in the case of Mysore Minerals Ltd. vs. CIT, 239 ITR 775(SC) and in the case of Podar Cement Pvt. Ltd., 226 ITR 625, it was observed that for the limited purpose of deduction under section 80 IB (10) of the Act the assessee had satisfied the condition of ownership; also even if it was necessary. Their Lordship referred to the case of M/s. Shakti 18 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 Corporation, which was also respondent in the said case. The said concern had entered into a development agreement with the land owner and there were certain minor differences. However, the assessee being developer was given full right to develop the land by putting up housing project at his own risk and cost. Entire profit flowing there from was to be received by the assessee though the agreement was providing that the assessee would receive "remuneration". Their Lordship observed that such one word used in the agreement was not to be interpreted in isolation out of context. The entire reading of the documents would reveal that the assessee had to bear the loss or as the case may be to take home the profit, it becomes abundantly clear that the project was being developed by him at his own risk and cost and not that of the land owners. Thus it was held that assessee did not work as a work contractor. It was held that the introduction of the explanation to section 80 IB(10) in these cases also will have no impact.
6.2. Ld. A.R further referred to the decision of Hon'ble Karnataka High Court in the case of CIT vs. Shravanee Constructions, 209 Taxman 6 (Kar). In that case a joint development agreement was entered into between owner of the land, developer of the land and assessee who was under the obligation to obtain Khatha from the Municipality; obtain plan sanction for construction of apartments on the said property by the Local Authority; making the land useable for the purpose of apartment construction by providing proper road and to give an approach to the site; jointly supervising construction of apartments; marketing the apartments falling to the share of the assessee and undertaking leveling of the road and removal of rocky services in the said land and made it useable for the purpose of construction of apartment complexes was also held entitled for deduction under section 80 IB(10) along with the developer. Out of total 211 flats built 40 flats were allotted to the assessee, upon sale of which the assessee had claimed deduction under section 80 IB (10).
19 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 6.3 Thus it was pleaded by Ld. AR that the facts of the assessee's case are on stronger footings and benefit to the assessee cannot be denied. In this manner Ld. AR has concluded his arguments.
7. In the rejoinder it was submitted by Ld. DR that in the reasons recorded by AO it has been clearly mentioned that the development agreement of the assessee is a colourable devise. He, therefore, submitted that assessee has rightly been denied with the benefit of deduction under section 80 IB (10) by the AO and Ld. CIT(A) has wrongly allowed the same to the assessee.
8. We have carefully considered the rival submissions in the light of material placed before us. We have carefully gone through the assessment order. Reassessment proceedings were initiated in the present case and the copy of reasons is reproduced by the AO in the assessment order. It is written in those reasons that a summon was issued to the society under section 131 of the Act and society has confirmed the agreement dated 15/11/1999 and copy of agreement of purchase of land dated 15/1/1974 was also filed along with conveyance dated 20/6/2000 between erstwhile owner of the land Shri Babu N. Page and the society. The reason for re-opening was that assessee did never become the owner of the land and title given to the development agreement was a colourable devise. Upon these observations in the reasons recorded Ld. CIT D.R sought to plead that the development agreement was a colourable devise. However, if contents of the assessment order and findings of the AO given in the assessment order are considered then it is nowhere the case of the AO that the development agreement entered into by the assessee was a colourable devise. At least, no material has been brought on record during the course of impugned assessment proceedings from where it can been gathered that the development agreement entered by the assessee with the society was a colourable devise. The scheme of assessment order is that after reproducing the reasons of reopening, the AO has reproduced the submissions of the 20 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 assessee running from page-3 upto page 12 of the assessment order, wherein the assessee has filed a detailed reply citing terms of the agreement and the provisions of section 80 IB(10) and pleading that assessee was entitled for the deduction under section 80 IB(10) of the Act. After reproducing the submissions of the assessee in para -4 at page 12 of the assessment order, the AO has just relied upon the reasons recorded by the then AO for re- opening of the assessment and based on the finding given in A.Y 2003-04 he has held that assessee is not entitled for deduction under section 80 IB(10) of the Act. He again asked the assessee to furnish certain evidences and he has reproduced the requirements to be submitted by the assessee vide letter issued by him dated 8/12/2006. The assessee again submitted the reply vide letter dated 9/12/2006 which is also reproduced by the AO in the assessment order. It was submitted by the assessee that assessee did not act as a contractor and his capacity was to develop the project and according to the decision of ITAT in the case of Patel Engineering Ltd. vs. DCIT (supra), the assessee is entitled to get benefit of deduction under section 80 IB(10). The AO vide para-7 has rejected such submissions of the assessee with the following observations:
"7. With due respect, I regret to state that the facts of M/s. Patel Engg's case relied on by the assessee are not comparable with facts of the assessee's case. It may also be noted that even extensive submissions made by the assessee, the assessee has not been in a position to rebut the facts and finding of the AO for reopening the assessment. Considering all the facts and circumstances of the case, I have come to the conclusion that the assessee is a Contractor and not a Developer within the meaning of section 80IB(10) of the Act and accordingly, he would not be entitled to claim deduction u/s. 80IB(10) of the Act."
Therefore, as it can be seen from the assessment order, the only case of AO is that assessee is not a developer but a contractor, therefore, assessee cannot be held to be entitled for deduction under section 80 IB(10) of the Act.
8.1. Submissions made before Ld. CIT(A) were reiterated by the assessee and from the terms of the development agreement it was found that assessee cannot be treated to be a contractor. The capacity of the assessee was of a 21 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 developer who is entitled for deduction under section 80 IB(10). Reliance has also been placed by Ld. CIT(A) on the aforementioned decision of ITAT in the case of M/s. Patel Engineering Ltd. (supra). In the grounds of appeal the case of the revenue is that Ld. CIT(A) has wrongly relied upon the decision in the case of M/s. Patel Engineering Ltd.(supra) as the same has been rendered in respect of a different section of the Act and the said decision of the ITAT has not been accepted by the revenue as an appeal has been filed against the said order. Not going into detail that whether or not the decision of ITAT Mumbai in the case of M/s. Patel Engineering Ltd.(supra) is applicable to the case of the assessee we found that moot point involved in the present case is that whether the capacity of the assessee, in the facts and circumstances of the case, is that of a contractor so as to disentitle him from claiming deduction under section 80 IB(10) in view of following Explanation inserted by Finance (No.2) Act 2009 with retrospective effect from 1/04/2001.
Explanation: For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).
8.2 According to the above Explanation it has been clarified and declared that provisions of section 80 IB(10) shall not apply to any undertaking which excecutes the housing project as a work contract awarded by any person (including the Central and State Government). If the assessee is held to be acting in the capacity of a contractor then he has to be held being not entitled for deduction under section 80 IB(10). Even, if we accept that the decision of ITAT Mumbai in the case of M/s. Patel Engineering Ltd. (supra) was rendered under different section then we have to consider the present case in the light of decisions which are rendered under section 80 IB(10).
8.3. One of the important decision in this regard is the decision of Hon'ble Gujarat High Court in the case of CIT vs. Radhe Developers (supra). In that case Hon'ble High Court has dealt with several cases of Developers which 22 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 include two streams. One stream was relating to the case of M/s. Radhe Developers in which the assessee had claimed deduction under section 80 IB(10). The housing project executed by the assessee was in respect of development agreement entered into by the assessee with M/s. Vinodbhai Nathbhai Patel (HUF) being party of the first part and the second party was legal heirs of deceased Ambala Motibhai Patel and assessee was party of third part. The party of second part represented the land owner, party of the first part represented the persons who had previously entered into an agreement to purchase the land from the land owner. Under development agreement the assessee had agreed to develop the land belonging to party of second part. On the same day another agreement was entered into by the assessee for purchase of land from the owners which described the assessee as purchaser and the aforementioned two land owners being sellers of the land. The AO denied the benefit under section 80 IB(10) on the ground that the assessee was not the owner of the land; approval by Local Authority as well as permission to develop the project and permission to commence the construction was not in the name of the assessee; the assessee had merely acted as an agent or contractor for construction of residential house.
8.4. The assessee carried the matter in appeal and Ld. CIT(A) put considerable stress on the requirement of ownership of land for qualifying deduction under section 80 IB(10). According to Ld. CIT(A) the land is intrinsic and inalienable part of the housing project. No assessee, therefore, could carry on business on undertaking, develop and build housing project without owning the land. The Tribunal however considering the provisions of section 2(47) of the Income Tax Act and section 53A of the Transfer of Property Act and relying upon the development agreement came to the conclusion that assessee for the purpose of Income tax had become the owner of the land, therefore, entitled for deduction under section 80 IB(10) of the Act.
23 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 8.5. In second stream of cases( the case of M/s. Shakti Corporation) the view of the revenue was that assessee being not owner of the land cannot be considered as entitled for deduction under section 80 IB (10). However, Ld. CIT(A) following the decision of Tribunal in Radhe Developer's case decided the issue in favour of the assessee.
8.6. Dealing with these two types of cases and going through the terms of development agreement and also considering the provisions of section 80 IB(10) their Lordship have observed that neither the provisions of section 80 IB nor any other provision contained in any other related statute were brought to their notice to demonstrate that ownership of land would be a condition precedent for developing the housing project. Their Lordship have noted that it is not even the case of revenue that under the other laws governing construction in urban and semi-urban areas there was any such restriction and the thrust of the arguments of revenue is that such requirement must be read into the statute. Their Lordship have rejected such contention on the ground that provisions of section 80 IB(10) of the Income Tax Act does not require that ownership of the land must vest on the developer to enable him to qualify for such deduction. Secondly; their Lordship have referred to the definition of the term "developer" and after considering the same their Lordship have come to a conclusion that according to the provisions it is not required that land must be owned by the assessee seeking such deductions. Their Lordship have observed that it is well settled that while interpreting the statute, nothing can be read into the provisions which has not been provided by the legislature. The contention which is not made part of section 80 IB(10) of the Act, namely, that of owning the land, which assessee develops, cannot be supplied by any purported legislative intent. Going through the terms of the development agreement their Lordship have observed that under those agreements the assessee had taken full responsibility for execution of the development project; the assessee had full authority to develop the land as per 24 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 his discretion; the assessee could engage professional help for designing and architectural work; the assessee would enroll members and collect charges; profit or loss which may result from execution of the project belonged entirely to the assessee. Keeping in view these streams of the agreement their Lordship observed that the assessee had developed the housing project and the fact that assessee being not owner of the land would be of no consequence. For this purpose their Lordship have also examined Explanation below section 80 IB(10) which has been retrospectively effected. Their Lordship have concluded by referring to several decisions available on the issue that in what circumstances a development contract can be considered to be "work contract". Their Lordship have held that the assessee had undertaken the development of housing project at its own risk and cost. The land owner had accepted only full price of the land and nothing further. The entire risk of investment and expenditure was that of the assessee. Resultantly, profit and loss also would accrued to the assessee alone. In that view of the matter, the addition of Explanation to section 80 IB(10) with retrospective effect from 01/04/2001 would have no material bearing in cases in hand.
8.7. Their Lordship also have referred to the definition of "transfer" given under section 2(47) of the Income Tax Act and also the provisions of section 53A of transfer of property Act and have come to the conclusion that by virtue of these sections the assessee for the purpose of Income Tax Act will be considered as "owner" of the land in view of decision of Hon'ble Supreme Court in the cases of Mysore Minerals vs. CIT (supra) and CIT vs. Podar Cement Pvt. Lt.(supra). In this manner their Lordship have held that the assessees were entitled for deduction under section 80 IB(10) of the Act.
8.8. We have to see the facts of the present case in the light of the aforementioned decision. The facts of the present case are almost similar to the aforementioned decision of Hon'ble Gujarat High court in the case of CIT 25 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 vs. Radhe Developers (supra). The arguments of the parties were almost similar. Here it would be relevant to refer some of the terms and conditions of the development agreement which throw light and demonstrate that assessee while acting in the capacity of developer has not worked like a "work contractor". He had invested the funds and had taken full authority to develop the land. The assessee was authorized to engage professional help for designing and architectural work. Profit and loss account which has resulted from execution of the project also belongs to assessee entirely. These terms have already been reproduced in the above part of this order. For example, in clause 3(a) it has been agreed between the parties that assessee shall sell the units constructed on the said property to the members of the said society who shall pay to the assessee directly such sum as may be mutually agreed subject to assessee being bound to prove the amenities detailed in Annexure-A of the agreement. In clause 3(d), the assessee had agreed to pay a specified sum for the land and also an office premises in the stilt of the building. According to clause 3(f) assessee has been agreed to be entitled to use permissible TDR and/or set back area on the said property and owner has been debarred from claiming any right, title or interest of whatsoever nature over the said TDR and/or portion of the TDR used by the assessee on the said property. Cost and consequences of use of TDR is the sole responsibility of developer. The assessee is entitled to consume the entire FSI and permissible TDR on the said property. According to clause 3(g) the assessee is entitled to sell the flats, garages, parking lot on the building to be constructed on the said property and to accept the consideration and to pass on valid receipt for the same and also mortgage the said property. Under clause 3(k) the assessee is also free to transfer the development rights under development agreement even without the consent of the society to any other party. The assessee has also shown all expenses incurred by it on the project in his profit and loss account and receipts have also been credited. Thus the profit and loss belongs to the assessee only.
26 आयकर अपील सं. / ITA No.2339/MUM/2008 नधारण वष /Assessment Year 2002-03 8.9. If the aforementioned terms of the development agreement is taken into consideration along with the fact that fruits of development of project have been enjoyed by the assessee himself then by no stretch of imagination it can be said that the assessee had acted in the capacity of a "work contractor". We, therefore, find no substance in the arguments of the revenue that in the facts and circumstances of the case deduction should not be allowed to the assessee as the work carried out by the assessee was in the nature of work contract. The assessee has developed the project in the capacity of developer by taking all risks and costs and has enjoyed fruits of profit. Therefore, we hold that there is no infirmity in the order of Ld. CIT(A) vide which the assessee has been considered to be entitled for deduction under section 80 IB(10) of the Act. We decline to interfere in the relief granted by him and dismiss the appeal filed by the revenue.
9. In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 08/05/2013
आदे श क घोषणा खले
ु यायालय म दनांकः 08/05/2013 को क गई ।
Sd/- Sd/-
(राजे / RAJENDRA) (आय.पी. बंसल / I.P. BANSAL)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
मंुबई Mumbai; दनांक Dated 08 /05/2013
27 आयकर अपील सं. / ITA No.2339/MUM/2008
नधारण वष /Assessment Year 2002-03
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT(A)-
4. आयकर आयु / CIT
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / DR,
ITAT, Mumbai
6. गाड फाईल / Guard file.
आदे शानसार
ु / BY ORDER,
स या पत त //True Copy//
उप/सहायक
उप सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण,
धकरण मंुबई / ITAT, Mumbai
व. न.स./Vm, Sr. PS